Want to know if your company is using its capital productively? Then ask yourself (or better still, your business unit leaders) a few questions. Do your business units rely heavily on capital spending to improve performance? Are rates of return below what was promised during project evaluation? Do divisions have to spend all of this year’s capital budget to ensure funding for next year? Is there any explicit accountability for capital spending? Do big capital projects receive less scrutiny than ongoing operating expenses? And is capital spending linked with strategy?

The management of capital investment has an enormous effect on profitability and competitiveness, yet few companies do it effectively. We believe that the use of evaluation tools, disciplined processes, and best practices can help companies trim capital spending by up to a quarter without reducing capacity or functionality—and improve their operating costs and revenues through better investment decisions.

So for those who answered yes, yes, yes, yes, no, yes, hmm ... maybe not, here follows a guide out of the capital "doom loop" in which senior management loses faith in the capital alloca-tion process, sets project hurdle rates above the cost of capital,

limits investment, and ultimately undermines the...